The provision for mandatory minimum penalty without mens rea and without discretion is excessive, unreasonable, and arbitrary, and therefore ultravires the Act and the Constitution.

Adarsh Kumar Goel, J.

1. This order will dispose of CWP Nos. 18099, 19513 of 2009, 780, 943, 8555, 9412, 11752 of 2010, CEA Nos. 46 of 2004, 80, 81, 161, 164, 184 of 2005, 6, 16, 84, 172 of 2006 and 88 of 2007.

2. The appeals have been preferred by the revenue under Section 35G of the Central Excise Act, 1944 (for short, #24;the Act#25;) against judgments of the Tribunal holding that penalty equal to the amount of duty was not mandatory under Rule 96ZO(3) of the Central Excise Rules, 1944 (in short, #24;the Rules#25;). The writ petitions seek declaration of Rules 96ZO, 96ZP, 96ZQ of the rules being ultravires the rule making power under the Act and also being arbitrary, discriminatory and confiscatory. Background

3. The appeals were earlier dismissed in the light of main judgment dated 3-8-2006 in Commissioner of C.Ex., Ludhiana V. K.C Alloys & Steels Castings , 2006 (206) E.L.T. 1183 (P&H). It was held that penalty under rule 96ZO was different from penalty under Section 11AC. Under Section 11AC, mens rea was the requirement for levy of minimum mandatory penalty and in absence thereof, under Rule 96ZO, either the requirement of mens rea had to be read therein or extent of penalty under the said rule should be held to be in the discretion of the concerned authority depending upon the period of delay in deposit and other circumstances. Such discretion had to be exercised judicially having regard to the principle of proportionality. Conclusions were summed up as under :-

#28;23. (i) Scheme of levy of penalty under rule 96ZO of the Rules is different from scheme of penalty under Section 11AC of the Act, in as much as there is no requirement of proving fraud, collusion, willful misstatement or suppression of facts or intention to evade payment of duty. The object of penalty under rule 96ZO appears to be to emphasise loss of revenue on account of delay in deposit. (ii) Since element of mens rea is not required to be provided for exercise of jurisdiction under rule 96ZO, quantum of penalty prescribed therein has to be read to be maximum and discretionary. (iii) Where element of mens rea of the nature specified in Section 11 AC is shown to exist, the quantum of penalty will be read as minimum. (iv) Discretion to levy penalty under rule 96ZO has to be exercised judiciously having regard to fact situation of a given case. Amount of duty involved, extent of delay, reasons for delay and other relevant circumstances may have to be kept in view for exercising discretion for determining the quantum of penalty. (v) Interference by this Court in appeal which is provided only on a substantial question of law, will be only where exercise of jurisdiction by the authorities is shown to be perverse or arbitrary, which has not been shown in the present case.#29;

4. After the judgment of this Court, the issue came up before the Hon#25;ble the Supreme Court in Union of India v. Dharamendra Textile Processors , 2008 (231) E.L.T. 3. The said judgment was delivered by Larger Bench of three Judges on a reference made to it on account of conflict of opinions. In Dalip N.Shroff v. Joint Commissioner of Income Tax , (2007) 6 SCC 329 = 2007 (219) E.L.T. 15 (S.C.), the view taken was that mens rea should be held to be an essential ingredient for levy of minimum penalty under Section 11AC of the Act. On the other hand, in SEBI v. Shriram Mutual Fund and another , (2006) 5 SCC 361, in the context of Sections 15D(b) and 15E of the Securities and Exchange Board of India Act, 1992 (SEBI Act), it was held that it was not necessary to read requirement of mens rea in a provision laying down minimum penalty. After referring to judgments in Director of Enforcement vMCTM Corpn. (P) Ltd . - (1996) 2 SCC 471, J.K. Industries Ltd. vChief Inspector of Factories and Boilers , (1996) 6 SCC 665, R.S. Joshi v. Ajit Mills Ltd . - (1977) 4 SCC 98, Gujarat Travancore Agency v. CIT - (1989) 3 SCC 52 = 1989 (42) E.L.T. 350 (S.C.), Swedish Match AB v. SEBI , (2004) 11 SCC 641